It’ll come as no surprise that here at PPF, Dragons’ Den is a big part of our TV consumption, and, as a business owner / entrepreneur, it’s probably in yours too!
Do you ever find yourself daydreaming a little … imagining yourself coming up that elevator, giving the pitch of your LIFE, getting 5 incredible offers …!
And then finding yourself back in reality with a THUD …
– ‘’How on earth would I know how much ‘’equity’’ to give away??’’
– ‘’Come to think of it … what is the difference between gross & net profit…?’’
– ‘’I would have NO IDEA when they start grilling me about my break-even point & my margins!!’’
And so that’s it. Case closed. Dream over.
You are just not cut out for the business ‘big time’.
WRONG!
At PPF, one of our core values is ‘Simplicity’.
This doesn’t mean that we encourage you to dumb down your business, or warn you off of growth into new areas.
What it actually means is that we LOVE to help educate business owners and break down the gatekeeping that comes from the jargon of the financial industry.
Once you understand what these fancy words actually mean, you’ll realise that you are more than capable of understanding your business, and going toe-to-toe with Peter Jones himself, should the opportunity ever arise…
Honestly, this started out as a list of terminology, a little explanation, maybe an example here and there … but, it was BORING.
And there is ENOUGH boring financial and accountancy advice out there!
So we’ve changed things up a little here, and now, your business is a cake. Metaphorically.
And you are now a brownie baker. Accept it.
And, in all seriousness, we’ve done our best to include easy-to-understand but detailed explanations here.
But, we cannot stress enough that all businesses, just like all business owners, are individuals.
To truly get the deepest insight into what’s going on in your business cake, we really do encourage working along with a professional.
So, with no further ado, we present to you … (and you might want to grab a cuppa & a piece of cake for this reading…(foreshadowing))
Debunking Dragons’ Den Jargon – A Short Story
‘’You’re up’’, the young assistant says to you with a smile.
You take a last sip of your water, set down the glass, and look up, setting your sights on the icon of television in front of you – the Dragons’ Den lift.
*Ding*
The doors glide open, and before you know it, you’ve stepped in, the doors have closed behind you and you’re all alone, just you and your racing heart, making your way up to the Den.
You close your eyes.
Yes, this moment is HUGE, but you know you’re ready.
The reports you’ve been poring over every evening, the daily meetings with your accountant over the past few weeks, the support of your amazing family.
The lights are so bright, and your eyes take a split second to adjust. You can see the five figures in their chairs. Oh wait. Six! There’s a guest dragon!
Taking a few steps forward, your eyes scan .. Touker. Sarah. Deborah.. Paul Hollywood?! Wow, what an INCREDIBLE investor he would be for your business! Steven, and Peter. The full line up.
You make it to the X on the floor, and take a deep breath.
‘’Hello Dragons.’’
… ‘’I am looking for £100,000 in exchange for 10% of my business. Please taste the samples and together, let’s heat up those ovens and breathe fire on the market’’
Without words, the dragons start tucking into the samples on the tables next to them.
Explaining your brownies is second nature to you – vegan for Deborah, a selection of your best sellers for the others – and as you do, you turn it all over in your head. ‘Did I say that right?
Yes, yes ..
I’m offering them 10% equity in my business.
That means that they’ll be entitled to 10% of my profits.’
You steady your breathing as you remember your accountant explaining this to you. Depending on the deal you strike, they could also ‘own’ 10% of your assets too, your ovens, fridges, your fleet of brand new Kitchen Aids…
And why 10%? You recall going back and forth for weeks over that figure. Is it too much? Is it too little? What had really made the decision in your mind was when the accountant explained it to you, using cake as an analogy, of all things!
She said ‘’Once someone has bought a slice of your cake, you will not be able to own the whole cake again until you buy that slice back off of them. But, as your business continues to thrive, your ‘cake’ will increase in value, and so if you ever want to buy it back from the investor, it’ll cost you more than what you sold it to them for.’’
Amongst the ‘mmms’ of approval, Peter pipes up.
‘’Hi, I’m Peter. Lovely to meet you. Delicious brownies. Really, really great … erm, so you’re valuing this business at £1million?’’
Your heart drops. A million sounds crazy, is that right?? You quickly delve back on all the info you’ve been cramming on over the last few weeks.
‘My business is a cake’, you remind yourself, in your head.
‘And the size of the slice, and what I’m asking for it, tells them how much my cake is worth’.
So yeah, the math is mathing.
If 10% is worth £100,000, then the whole cake must be worth a million!
You remember your dad saying with a cheesy grin ‘’that valuation is nuts!’’, but only because he couldn’t resist the chance at a dad joke, as he listened to your pitch with a cup of tea and one of your hazelnut brownies. You know that he believes in you more than anyone.
You’re starting to feel a bit like a deer in headlights, when Sarah chimes in, with a smile.
‘’These are super yummy. But there’s no denying that there is a LOT of competition out there, so we just need to get our heads around this valuation.
What’s the market like? What share are you looking to take?’’
‘Market?!’, you think ‘I don’t sell at markets! I thought I’d made it clear about the store, and the online sales -’. And then it clicks. The market! The opportunity.
Sarah wants to know how many brownies are being sold each year, and how big of a player you really plan to become in the brownie business!
And THAT is what will tell Peter why your business is worth so much!
Smiling, you take a deep breath and start to explain just how much of a sweet tooth Britain really has…
Paul Hollywood has a glimmer in his eye.
‘’I know better than anyone here how much people love baked goods. But we’re not talking about Bake Off here, we’re talking about a business.
So, for your last financial year, can you break down for us the turnover, gross profit & net profit?’’
‘’It’s okay, you can take a minute to gather your thoughts.’’ Deborah says, popping the last bite of brownie into her mouth.
You appreciate that! Numbers aren’t your favourite topic, but you KNOW you know this.
‘What’s my Turnover?’
In other words ‘’how much money have you made selling your baked goods?’’ They are looking for the total amount of all sales, regardless of the cost of ingredients etc. They’re looking for the turnover for the last full financial year, but you know that your quarter 4 sales are VERY impressive, so you want to tell them the breakdown for each quarter, so they can understand more fully.
‘Okay, so on that turnover, what’s the Gross Profit?’
Or, ‘’from that amount of sales, what is left after paying for ingredients, packaging etc?’’ You had it drilled into your head that to find the gross profit, you need to deduct only the direct costs. It’s clear when it comes to your delicious baked goods that you cannot possibly make and sell them without buying your ingredients and packaging them. Why is this amount important? Well, it says a lot about whether the pricing is right. Gross profit is very low? Maybe the goods are sold too cheaply, or the ingredients are too expensive.
Very high? There may be scope to reduce the price of the goods, to entice more sales. You know that this number could be improved, if only one of the Dragons can help you secure a better deal with a certain chocolate supplier…
‘And then the Net Profit?’
You have a tiny chuckle to yourself as you think about it. You’re probably all too aware that the direct costs are not all that is involved in running a business. Your lucky to have a premises in your parents’ garden for baking, but there are still those bills to pay, the rent of the shop, and of course paying your hard-woking staff and your incredible accountant who has been by your side the whole way up until this point.
‘Got it.’
A little shaky at first, but you start reeling off your numbers, growing in confidence as you see the slow nods and glances between each other as the Dragons jot down your figures.
‘’So at what percentage is your Profit Margin?’’
Honestly, Steven has probably already done this calculation in his head but you know that this is a test of how well you understand, not only your business, but also how the accounting and financial side works.
What he wants to know is ‘’for every delicious, gooey, oozy tripe chocolate brownie that you sell, how much is leftover after your costs?’’
‘’And what is your break-even point each month?’’ Steven counters, after your response, pen poised.
‘’Well, I’ve got the bills at the bakery and the shop, and I have 5 staff currently..’’ you say, looking him in the eye, feeling confident now. You are able to tell him the how much you need to make each month to cover those bills, to bring you back to zero, so to speak, before you tip into profit for the month. ‘’… and once that’s covered, then the rest of our sales are profit – the cherry on the cake!’’ you grin.
‘’Hmm, so quite a lot of overheads then..’’ Peter muses, thinking over just how much you have to pay for each month, just to keep the business running.
‘’So tell us, how is your cash flow?’’
This is the first question so far from Touker. You nod slowly, both knowing that cash flow is a tough issue for many small businesses.
‘’I’ll be honest,’’ you reply ‘’I know I sell a lot of brownies. I KNOW I am making a profit. But we do struggle with cash flow. Most of our bills are paid on the 1st of the month, so the bank balance goes right down .. and we spend the rest of the month trying to make the sales to bring it back up!’’ You know that the Dragons always see through people if they try to sugar-coat things, so you may as well tell it as it is. You’re hoping, in fact, that having a Dragon on board can help you to negotiate better terms with your providers, and, of course, help you get some big corporate orders who will pay in advance, and keep the bank balance on a more even keel.
The Den falls quiet for a minute, and you take some time to reflect. You are really proud of how you’re doing so far. 6 months ago, this would’ve seemed impossible, but little did you know that all of this information was right there, waiting for you! You learned how to access reports in Xero, your accounting software, and worked each week with your accountant to
ensure that all the bookkeeping was up to date. You can sense that the Dragons are getting ready for the final round of questioning. They know your brownies are fabulous. They understand the size of your business, how big of a slice you’re offering them and why …
‘‘I’ve eaten a lot of brownies in my life.’’ Peter’s speech interrupts your musing.
‘’These are really good, but what is your U.S.P.?’
Ahh .. Peter is chancing his luck at finding out your secret ingredient! What is it in your brownies that’ll have people coming back for yours over someone else’s? What is their unique selling point?
Whilst you don’t wish to have your secret recipe shown on air, you know why he needs to know. The world of business is so saturated, in almost every sector, that for you to make it, you need to have something different, that little ‘je ne sais quois’.
‘‘Ahh’’, Peter says, after you whisper your secret to the perfect brownie in his ear. ‘’I never would have guessed that, but I’m not a baker… what’s stopping other bakers from figuring it out?
Do you hold the I.P.? Do you have a patent?’’
Just like thumbs and fingers, all patents are intellectual property, but not all intellectual properties are a patent.
You’re not just an entrepreneur and a baker. You’re an inventor, you’re one of the generation’s greatest minds! You’ve invented something that means your brownies are literally the best in the world. You’re Willy Wonka and the ‘Slugworths’ of the world will stop at nothing to get their hands on your secret recipe! Well, nothing, that is, except a lawsuit. You worked with a lawyer to figure out what it was that you had come up with, and what you could protect with a patent, meaning that no one else can legally do the same as you do. You also quickly rectified a little problem with your logo … you didn’t actually own the Intellectual Property of the picture you were using! But you have designed it anew new, and you know it’s all yours, and no one else has the right to use it, or your brand name. You know that in order to build a brand that can last and a product that will always stand out from the competition, you need to be smart in making sure that you can protect what you’ve created.
‘’There’s no question that a lot of love goes into each one of your brownies.’’ Steven says with a smile, ‘
’but that’s what makes me question the scalability.’’
You nod. Steven’s right. You and your small team are all so passionate about brownies, and not a single one leaves the kitchen without your say so. And you know that this is why your customers keep returning – they know that every single brownie will be just as delicious, every time. You need to tell Steven your master plan for growing your business without compromising on your famous quality.
The Den falls silent for a minute after hearing your plans. Your stomach is turning in circles as you try to figure out whether this is one of those good silences or not …
The Dragons all seem to be nodding in approval. Deborah is doing the finger rubbing thing. Peter crosses his legs flashing even more of stripey socks.
‘’Okay.’’ suddenly barks Touker, and you snap your head to face him. ‘’This has all been very la-di-da, very sweet..’’ He takes a quick side glance over to Peter to check that he’s appreciated his pun.
‘’But what’s the end game? How do I get my money back? What’s the exit strategy?’
This is it. You can tell that the time for talk is nearly over, things are wrapping up. Any investor worth their salt (which, of course, you sprinkle a pinch of on top of your brownie to ensure that the dark chocolate POPS) needs to think about the future. You’re not a charity. They’re not giving you money out of the kindness of their heart. They want to know when you’ll be buying back their share, or which big player you plan to sell the business to down the line.
You’ve given your spiel. You rehearsed this a hundred times. You know the answer.
It’s time for the Dragons to decide…
And that’s the real secret ingredient, isn’t it?
It’s not about the secret chocolate you use, or even about getting an investment from a celebrity baker.
It’s the quiet confidence that comes from truly understanding your own creation.
Whether you walked out of that den with a cheque in your hand or not is almost beside the point.
You walked in as a baker and stood there as a CEO.
You proved that all that scary jargon is just that – jargon.
Once translated, it’s just the language of your business, and you’ve just shown you’re fluent.
So, whatever your own personal Dragons’ Den looks like – a bank loan application, a pitch to a new client, or just planning for the future, remember your business cake. Know its value, understand its ingredients, and be ready to take your slice of the market.
And if you ever need a hand reading the recipe, you know who to call. You bring the cake, We’ll bring the tea.
Check out PPF on YouTube
